The SEC Office of Investor Education and Advocacy ("OIEA") published guidance on investment adviser sponsored wrap fee programs.
In the Investor Bulletin, the OIEA explained that wrap fee programs allow investors to pay a single "wrap" fee for investment advice related to a particular investment account. This fee includes brokerage services, administrative expenses, and other expenses. Wrap fee programs are typically sponsored by one or more individuals and are generally assessed based on a percentage of the value of the account. The OIEA advised that, depending on the program, the wrap fees may amount to either more or less than the amount that would be paid if investment management and brokerage fees were obtained separately. As a result, the OIEA cautioned investors to be aware of the fees that are assessed when determining what type of account most closely meets their needs.
The OIEA instructed investors to carefully consider which services are encompassed by a particular wrap fee agreement. The SEC mandates that wrap fee program participants receive a brochure describing fees and services provided upon entry into a wrap fee program contract. The OIEA also provided a list of important questions to consider asking an investment adviser about a wrap fee program, and listed additional resources that could be useful for an investor considering participating in such a program.
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